How Avoid Vacation Overspending

One way to avoid vacation overspending is to NOT to use your credit card for all of your vacation expenses.

This article will highlight why using your credit card can lead to vacation overspending and why the points are not worth the risk.  Hopefully, it will answer the question, are you receiving enough points to compensate for vacation overspending.

Are You Charging All of Travel Expenses?

I was talking to a good friend about vacation spending and we were comparing notes on how we stay within our vacation budgets.  We both agreed that major expenses such as airline tickets, auto rentals, and accommodations should be charged to our credit cards for many reasons.

When we got to discussing food, drink, entertainment, and other travel related expenses, we had completely different views.  I stick mostly to a predetermined budget by using cash, because it prevents me from accidentally overspending. She prefers to charge everything to her credit card to get as many points as possible. My friend said she is not as concerned about vacation overspending compared to loosing the points from her purchases. She does not carry balances on her credit cards.

I have thought of using my credit card exclusively for all of my traveling costs for the same reason.  It’s an ongoing debate in mind and a wonderful subject for a blog post.

Let’s explore both options and why I still believe you should not use your credit card for all of your travel expenses.

When it Makes Sense to Use to Your Credit Card

Use your credit card for all major fixed expenses related to your vacation.  Expenses that should be charged include airline flights, automobile rentals, travel insurance, accommodations, and travel experiences that need to booked ahead of your vacation. Keeping tabs on these expenses should help avoid vacation overspending.

You have a new credit card and must reach a specific spending limit in order to get the bonus points.  Perhaps you opened a new credit card because you knew you would be spending more than usual helping you achieve the spending minimum.

Some families don’t care what they spend on a vacation.  Because there is no need to budget, all expenses can be charged to a credit card.

Variable Expenses are the Likely Cause of Vacation Overspending

Just like the rest of your budget, variable expenses have a way of creeping up when you are not watching.  And who wants to watch closely how much they are spending when you enjoying your vacation?

How Many Points Will You Lose?

Let’s take a look at the potential points that you may forfeit should you decide to use cash instead of charging all expenses.

Suppose you decide that $250/day will cover food, drink, entertainment, miscellaneous admission fees and your vacation is one week or seven days.

Here’s a simple calculation (rewards points will vary, meaning you will need to do your own calculations).

$250 x 7 days = $1,750

$1,750 x 2% back = 3,500 points

3,500 points, if redeemed for Southwest airline miles is worth approximately 1.5 cents per mile or $52.50 (3,500 x 1.5 cents).   Of course, it may be more if you find a sale.

3,500 points, is worth about .8 cents if redeemed for Marriott hotel accommodations or $28. Again, you may catch a sale.

Cost of Vacation Overspending

I would argue that the cost of vacation overspending is not worth the risk.

Let’s examine another example:

You take the same week-long vacation and spend $1,000 more than you had planned.

Let’s assume that it’s in a category where you receive 5% back.

$1,000 x 5% back = 5,000 points

Using the same assumptions as above:

5,000 points, redeemed at Southwest airlines for an airline ticked would be worth $75 (5,000 x 1.5 cents).

5,000 points, redeemed at a Marriott property can be worth $40 (5,000 points x .8 cents).

And you will have an extra $1,000 added to your credit card balance.  If you do not have the extra $1,000 to pay your credit card provider when your payment is due, you have now created another problem.  Paying interest because you are carrying credit card debt. This can mean approximately $13/month in interest for the extra $1,000 assuming a 16% APR.

Two Easy ways to Avoid Vacation Overspending

Use Cash

It has some wonderful advantages.  Mostly because you can’t spend more than you have.  Once it runs out, that’s it.  You can physically see how much you have.  If you are family and don’t want to carry a full week’s worth of cash, you can use an ATM.  Do make sure you are not paying fees for the use of an ATM.

Purchase Prepaid Credit Cards

It’s harder to keep track of what is remaining.  However, it is not impossible to do so. This means you will likely receive points for the purchase of these cards.  This is an added benefit.

Decide Before You Go How Much to Budget

Before you leave, decide on what your daily spending will be or how much you can afford in total.  Whenever I take road trips, either for a few days or an outing, I decide ahead of time how much I want to spend.  I bring the cash and make decisions about admission fees, food, and drink as I go.

In Summary

Using your credit card for all of your vacation expenses can seriously damage your vacation budget.  Most people believe that charging all of their expenses will give them the many extra points that they can use for future vacations.  The math does not support it. (Dear Reader, if I missed something in my assumptions, please comment below.) I believe, is more important to avoid vacation overspending, then it is collecting points.

Do you charge all of your vacation expenses to your credit card? What tips to you have in order to prevent vacation overspending?